Hello everyone. My name is Holly, and I'll be your conference operator today. I would like to welcome you to today's Ford Motor Company Capital Market Call. I would now like to turn the call over to Lynn Antipas Tyson, Ford's Executive Director of Investor Relations. Thank you, Holly, and welcome to our call about our exciting announcement this morning. With me today are John Lawler, our Chief Financial Officer, Kumar Galhotra, President of Ford Blue, and Doug Field, Chief EV and Digital Products Officer, Ford Model e. Today's discussions also include forward-looking statements about our expectations. Actual results may differ from those stated. The most significant factors that could cause actual results to differ are included on page 15 of the presentation that we posted on our website this morning. Unless otherwise noted, all comparisons are year-over-year. Company EBIT, EPS, and Free Cash Flow are on an adjusted basis. Product mix is volume weighted. We'll start the call with a few comments from John, and then we'll open it to Q&A. In the interest of time, I would greatly appreciate it if you would limit yourself to just one question. We're gonna have to end this call about five minutes early because we're gonna be jumping to our global town hall, where all of our employees will hear about all of this really for the first time. Now I'll turn the call over to John. Thanks, Lynn. Good morning, everyone. Today's announcement is really the next logical step in the acceleration of our transformation under our Ford+ Plan. We're reimagining creating a world-class company that's designed to co-compete and win long term. What that means is that for the next 100 years, we are going to continue to grow and be a very strong company. Now, creating new distinct businesses, Ford Blue, Ford Model e, that's going to enable the best of both worlds. Ford Blue is our ICE business, and it's built on iconic lifestyle products and will deliver deep manufacturing know-how, and scale to the entire enterprise. Blue's focus will be on disciplined capital allocation, process simplification, and dramatic structural cost reductions to optimize cash generation, and profit. Looking at Ford Model e, it's designed with a clean sheet to attract new talent with autonomy to accelerate growth, and deliver breakthrough EVs, and all that while creating exciting new digital experiences for our customers. Combined with our leading commercial business, Ford Pro, as well as Ford Credit, we believe Ford now has the right organizational structure to compete, and win against the very best, both legacy OEMs, and new BEV startups. We are committed to driving long-term value for our customers, both retail, and commercial which in turn will drive value for our shareholders. With today's announcement, we reaffirm our 2022 guidance of $11.5 billion-$12.5 billion in adjusted EBIT, which if we attain the high end of our adjusted EBIT guidance, our margin would be at 8% one year earlier than our target. We shared our target to build more than 2 million EVs by 2024. That's about a 70% CAGR, and EVs will account for more than 50% of our global sales by 2030. We also reset our profit ambition. We're now targeting a 10% adjusted EBIT margin by 2026, which is 270 basis points higher compared with what we achieved last year in 2021. With that, let's open up the line for your questions. Thank you. If you would like to ask a question during this time, simply press star then one on your telephone keypad. To withdraw your question, press the pound key. We will now take a minute to queue the roster. Again, to queue for a question, press star then one. Our first question is going to come from the line of Rod Lache with Wolfe Research. Hi, everybody. I had a couple things I'm hoping to fit in here. It sounds like the separation of Ford Blue and Model e goes beyond product development to purchasing sales groups. Can you confirm that extends even to the different dealers, so it'd be Ford electric dealers with different franchise agreements? What is the timeline for building all this up? I'm talking about all of the different functions within Ford Model e. Lastly, most EV-focused companies spend years of investing, so profitability is kind of a long-term endeavor. Just at a high level, is this EV business profitable kind of in the investment timeframe as you look out to 2026, or is it generally through that timeframe burdened by the investment stage? Thanks, Rod. It's John here. I'll start with the last one, then ask Kumar to talk about the dealers and Doug to talk about Model e. As you would expect, we are investing heavily in our EV portfolio and our growth plan. It's higher than we had been expecting just, you know, last year, as we build this out. In the near term our EVs will not be on a bottom-line basis, EBIT positive. As we start reporting these segments next year, you'll see that clearly. We intend as we get to our second generation of products, that those will have fully competitive margins and be EV positive. That will come over time and be EBIT positive. Thank you. Our next question is gonna come from the line of Joseph Spak with RBC Capital Markets. Hey, Holly, just one minute please. Thanks everyone. Wait. Hold on, 'cause we just wanna finish up answering the other question. Kumar, do you wanna handle that? Yeah. Just respond to Rod's question about the dealers. Well, let me start with, we are betting on our dealers. We are going to stay with our dealer franchise model. Moving forward, we expect them to start getting more and more specialized. We already have some of this with our commercial vehicle centers for Ford Pro, because those customers' needs are quite different than our retail customers. On the battery electric vehicles, those customer's expectations are quite different. The kind of experience that other battery electric manufacturers are providing is quite different than our experience. Over next few months we're going to be working with our dealer body, with designing the experience itself, and then equally importantly the standards that actually deliver that experience. The dealers will have the option to opt into the new standards and the new experiences. That whole process, Rod, I believe, over next few months, I can't be any more precise than that, but certainly before the end of this year, should be wrapped up, so we will be very clear on the dealers who are Model e dealers. The other question Rod had was on something to do with Model e. Rod, forget the question. Rod, line is open. Just to clarify this, the two things that you said. John, the second generation becomes profitable. Yes. That's beyond the 2026 timeframe? Yeah. Just to clarify that. Sure. The question organizationally was, it sounds like you are not having different franchise agreements. You're using your existing franchisees, but you're expecting them to opt in for different policies. Will only certain dealers carry electric vehicles? Are you trying to, you know, try to just create something that is sort of legally different or no? The key is the experience and the standards. Once we develop them, we're going to work with them to develop the experience and the standards. Once those are developed, then the dealers will have the option to either opt in or not. Okay. The timeline for standing this up, you're building a big group here within Model e in product development and so forth. What is the status of that group today, and what's kind of the trajectory of it? Well, on the product development side we are up, and running. And this is just a different way for us to get all the people together, and get them focused. The teams that built the Mach-E, and the Lightning are here. We're building out that model. We have a number of people that have already started working on the second- generation vehicles. We're not waiting at all. We wanna continue to recruit, and get the very best people in here, but my goal, and Hau's goal is we don't miss a beat. Yeah. Rod, the clarification on the margins for Model e, the team will be working to improve. The bottom cost the material cost significantly on Lightning and Mach-E as it continues today. The second- generation of vehicles start launching in 2025 with the site in Tennessee. Those products that second- generation, will be built up off the clean sheet, and we expect them to have fully competitive EV margins at that time. Really starting in that 2025 timeframe. Okay, thank you. Our next question is going to come from the line of Joseph Spak with RBC Capital Markets. Thanks so much. I just wanna go back to the, I guess the. Lost Joe? Between the ICE and the EV. I guess what I want to better understand is the exact level of the investment in that. Because to me, it seems like that part is structural? And, you know, the volume is certainly gonna be variable. It might be in your favor, it might not. I wanna sort of try to better understand the structural investment costs you think you're adding between now, and 2026. Okay, Joe, you cut out, so we missed part of it. I caught the back end of it. As Jim said. Sorry, I can repeat. Okay. Yeah. Can you repeat the first part of it? I caught the back end of around the structural cost. Yeah. I guess just on the 300 basis points, right? So I get the $3 billion in lower ICE structural costs. I'm assuming there's some top-line growth, and you think you'll get some conversion on that. But that part is, you know, gonna be variable. So I guess what I wanna understand is embedded in the 300 basis points, how much is sort of the negative, you know, structural investment part? Right. We'll be, as Jim said, over the next. The period between now, and 2026 total investments planned right now for our BEV business are $50 billion. That will be going into Model e, and that's the footprint, that's the products, that's direct investment in joint ventures, that's expense, engineering expense, et cetera. On Ford Blue, we'll be investing in the products, as Jim talked about. Where we believe that they will have continuing consumer demand over time. That will be at a much lower level than what we've seen in the past on our ICE products. Some of that investment will be a shift out of Blue into e. We'll be looking at reducing structural costs within Blue, and that $3 billion will be all within Blue. That's the way we should think about that, and how we'll show that over time and the progress against that. It will all be in Blue while we invest in Model E. Does that clarify? Is that three net then, or is that the gross savings on the ICE side? That $3 billion is the gross savings in Ford Blue, right? When you look at the company in total, the overall umbrella, we're gonna be investing about the same level overall. We'll be driving the efficiencies in Ford Blue, so $3 billion of structural costs coming out of Ford Blue, but we'll be investing in Model e. In 2023 we'll be providing you with discrete P&Ls for each of the divisions. You'll be able to see the revenues, you'll be able to see the volumes, you'll be able to see the margins in e, and you'll see the same thing in Blue. We'll be talking about the performance drivers for each of the divisions, as well as Ford Pro. Ford Credit will continue to have a full P&L, balance sheet, income statement, et cetera. We'll have Ford Drive as well, as we've been reporting mobility today as a segment. Thank you. Our next question is going to come from the line of Adam Jonas with Morgan Stanley. Hey, thanks. Can you hear me? Yes, Adam, we can hear you. Okay, I'll assume you can hear me. Thank you. Back to the dealers, Jim was saying no inventory. I'm interpreting that as 100% order to delivery or and/or no haggle, one price. Can you confirm that that's part of what you're gonna be. In addition to the capital improvements and the ability for the dealers to opt in on, you know, having the equipment to handle higher voltage. And the safe and functioning and reliable way to service the Model e vehicles. Is that also gonna include one price and a kind of full order to delivery type of approach? Is that the idea? Yeah, Adam, this is Kumar. As I mentioned earlier we will be taking these experiences, and creating standards for those over the next few months with our dealers. Yeah. Those are the key tenets of that experience, yes. Okay. Thanks Kumar for confirming that. Does that mean that, I'm thinking of agency models or some kind of fixed commission or something, or presumably that's also, and I know you're not at liberty to say the details, it's all up for grabs. Are we mistaken if we start to think about something that could involve a potential agency model? As you work with the dealers on that strategy? Adam, I'll start out and then hand it over to Kumar. I think we have to look at that differently around the world. We're already using. Yeah. The agency model in China with our Ford Model e stores that we're opening up, select city stores. That's an agency model. The ability. Yeah. Agency model is a lot more straightforward in Europe. Now, in North America, I'll let Kumar talk about that because he's been working that very closely with the dealers, and with the team. Yeah. For North America, we're going to stay with the franchise model, but with a very different. I know I risk repeating myself, very different customer experience, very different standards, no inventory, great transparency for the customer. We're building out that experience, but we're gonna stay with the franchise model. Well, I mean, am I mistaken? There's no choice. You legally have to stay with the franchise model. Is that correct? That. Exactly. That is correct. Just last one from me. You're gonna have separate P&Ls for Blue, and for Model e. Will there also be separate balance sheets? No. Equity, that's accumulated? No. We will have EBITs, and revenues, and volumes, et cetera, for e, for Blue, for Pro. Mm-hmm. The only business unit that will have separate balance sheets, and equity will continue to be Ford Credit. There'll be no change in Ford Credit, but we're not going as far as to create separate balance sheets, and equities for the segments. Okay. Just to confirm, I didn't mean for external disclosure, but internal disclosure is how I meant the question. You're not thinking of internal capitalization of these businesses? Not at this point, no. Okay. No, we're not going at this point. Okay. Thank you. I think you're asking are we going to the point. Where they're separately auditable, and we're not taking that step. We're setting them up as segments. Yeah, or even separately investable from private, the way that, you know. Some of your peers can offer an access for private investment in certain units. A direct investment like a GM Cruise example, for example. That was the spirit of the question. Yeah. Exactly. Thank you. As Jim had talked about, Adam, you know, we unpacked that, we've pushed and pulled on it. We spent a lot of time around it. Yeah. Right now we're just going to the segment level. We are not going to auditable. No. Even as you know, that is a much heavier lift from a reorganizing standpoint. Indeed. Thanks, everybody. Thank you. Our next question will come from the line of Colin Langan with Wells Fargo. Oh, thanks for taking my questions. Just, I know on the media call you mentioned a spin is off the table. But I do get a lot of questions about a tracking stock. So a partial spin of, you know, maybe 10%-20% to sort of solidify the value of the Model e. Is that something that would be considered, or does that just add too much complexity? You know, one of the reasons I think people want something like that is startups have pretty high stock comp. That's a draw to get that tech talent. If you don't do something like that, how can you create structures that are similar to stock comp to draw on the top talent? Yeah. At the start, we're gonna go to reportable segments, and that's how we're gonna manage it. We are not going all the way in the structure standpoint to auditable, and investable which is what would be required to do something like that. That's not our plans at this point. We believe that once we start reporting the segments, that you'll be able to see the value creation. Amongst each of the divisions, and we feel that we should get credit for that. I understand we had a lot of discussions about the point you're raising, but at this point, we are not going all the way through to auditable, and investable. Just one quick follow-up. I mean, I guess everyone's gonna be asking me, you know, how to frame the losses that are coming out of Model e. I mean, what kind of color can you give there? I mean, to sort of help us ballpark what kind of drag that is today on your core EBIT in terms of the investments there that are weighing it down? Yeah. Part of that is, as you'd expect, we have a lot of work to do to completely segment. You know, what's in Model e, what's that driving relative to what's in Ford Blue. That work is underway. What I will say is that our guidance in getting to the 8% EBIT margin, you know, by 2023 includes the investment. It includes the margin drag of Model e within that. The way to think about it is we're still committed, and we're reaffirming our guidance to the 8%. That will include everything we're doing on Model e. From there, we will march towards the 10% by 2026. As Model e continues to build out more efficient models, lower material costs, and starts to scale. As well as we create a much leaner structure within Ford Blue, and we continue to improve that business,and drive that for cash generation. That, that's the way I would frame it up right now. Of course, as we go over time, Colin, as soon as we can. No later than the first part of 2023, Q1 2023, we'll be able to start to provide a lot more clarity around e, Blue, Pro. Of course, we do that for credit today, and then we'll have the clarity around Ford Drive, which is our mobility business. Okay. All right. Thanks for taking my question. Thank you. Our next question is gonna come from the line of Emmanuel Rosner with Deutsche Bank. Thank you very much. Good morning, everybody. One follow-up question on the 10% margin goal around 2026. So is it fair to assume that this would come from an even higher margin, you know, coming from Ford Blue, offset by a lower margin, you know, coming from Model e? If that's the case, obviously, you know, starting from a starting point of. You know, 8% by 2023 or even maybe at the high end of this year. You know, any way to sort of like frame the gross cost savings you're targeting, you know, for Ford Blue? I assume that the $3 billion is a net number between the cost savings, and then some of the additional investments. Any way to sort of like help us understand, how you're gonna get to a solidly double-digit margin within the Ford Blue business? Right. You know, today we're continuing to invest in Model e, and that's all co-mingled with our total results for the 8% we're driving towards. In Ford Blue, the significant structural cost reductions, the $3 billion structural cost reductions in Ford Blue, of course, drives the margins. But we're also looking at improving the contribution cost as well. You know, if you think about it, as we reduce complexity, as we focus in on driving simplicity through our ICE business, that will also help the margins. The margins will be higher in Blue. You'll start to see that next year when we report. Then over time, you'll start to see as we get to that second- generation of BEV vehicles. Those margins being competitive, as we launch those vehicles. The other thing to think about is that we are gonna grow our volumes by 2 million units. And that 2 million units is, you know, not completely substitutional. There will be, you know, top-line growth there, and there will be contribution margin that comes through that as well. It's a combination of those three levers, higher volume, improvement in our BEV BOM cost. Establishing a very efficient manufacturing footprint for our BEVs, and then the structural cost reductions in our ICE business in Ford Blue. As well as simplicity, complexity reductions, and driving for higher margins as we manage for cash in our Blue business. Okay. I appreciate that color. Then if I could just squeeze a quick follow-up on a different topic, I guess taking advantage of the fact that you're reiterating guidance for you know for this year. Any initial thoughts on how to frame the operational risk from the terrible situation in Russia, and Ukraine either for the industry broadly or for Ford specifically? Anything you're able to share at this point in terms of exposure or risk factors? Yeah. I think, you know, the way we're seeing that start to shape up, and it's early days, as you know, is we have very little exposure to Russia or Ukraine. We had restructured our Russia business, a couple years ago. It's a small operation with Ford Sollers, and we're suspending that operation. But there is not a significant exposure or impact to us of doing that. We don't have a significant footprint in Ukraine, so there's not a lot of exposure there. Where we're seeing the exposure across the industry is in the commodities that are coming out of both Russia and Ukraine, and what the impact will be in commodity prices. We're seeing commodity prices rise, currently compared to what we had been planning in our base for this year, and we'll have more, you know, be able to frame that up more when we get to our Q1 earnings. We are seeing those come through, so I think we're gonna see it through higher commodity prices and higher costs. Now, you know, as the war continues and as it has more economic impacts globally. We haven't been able to frame that out, what it might mean for the industry from a SAR standpoint or what it might be from a global economic impact. We're intensely focused on working that and understanding what those might be and, as you'd expect, we're working through scenarios. Nothing to share on that today. Great. Thank you. Our next question will come from the line of Ryan Brinkman with J.P. Morgan. Just the fact that you're increasing, and pulling forward the profitability targets today. Also, you know, how much of that is coincidental or related to other factors versus related to today's reorganization announcement? Is the complexity and structural cost reduction at Ford Blue? is that driving the majority of the improvements to profitability targets? Maybe you can provide some examples of how you intend to reduce the complexity there. I don't know, maybe fewer engine, and transmission combinations as that business is smaller as a percentage of total. Do you anticipate a net reduction in headcount, and facilities over time or just more of a movement of those people, and headcount from Ford Blue to the EV-focused business? Just lastly, the housekeeping item, you know, as these businesses gain their discrete P&Ls. Will you then cease reporting geographic results at that time? I'll start with the last one, and then you'll have to remind me as I go through cause I might forget some of what you had in there. Well, geographies are still gonna be important to us. But we will focus more on the business units and in 2023 going forward as we report the business unit segments. But of course, you know, if there's color that will add to understanding what's happening in the business units around the regions. We'll provide that, but it's not gonna be the core focus any longer of how we report the way we're running the business. When you look at the growth plan and you look at moving from the 8%- 10%. What we know in detail is our plan to 8%, right? As you'd expect. If we can drive, depending on what happens, you know, externally to the high end of our guidance this year. We'll be, you know, right about at that 8%, at that 8% margin. Coming off of that, what does it take to drive us to the 10%? It's really the three levers that I talked about. It's the growth in volume, and while we grow that BEV volume, we have to improve the BOM cost, right? We have to improve the margins of those vehicles, and we have to make sure that we're putting the manufacturing footprint in at very efficient levels. So that we can achieve what I say are competitive margins with those that are out there today. That is the remit. That's why the clean sheet of paper. That's why the focus that Doug is putting on insanely great EVs, but at really efficient levels of cost. That's the challenge that great engineers love. They love to create simplistic, incredible products at low cost, and that's what Doug is driving towards. Then when you look at our Blue business, we know that we have to take that business, lean it out, simplify it, and drive increased margin there. A big part of that will be the $3 billion of structural cost reductions. We'll also be looking at increasing margins, lowering contribution costs. I'll let Kumar talk about what he's doing and what he's thinking about simplicity, and complexity reduction in that business. Yeah. What you mentioned, as an example. The lower number of engines, and transmissions, and lower combinations, absolutely. That is one of the key complexity levers, but there are so many more. Everything from colors, trims, the size of the screen we put in the in the instrument panels. Once we start simplifying those, the ripple effect it has on the business is quite amazing. When you have less complexity, it immediately improves quality because there's fewer things to go wrong, there's fewer combinations to go wrong. The quality, and as I mentioned earlier, our warranty costs have to come down. If you reduce complexity, you're reducing investment you're making in your products, so you're tooling up fewer parts. If you reduce complexity, you're simplifying the manufacturing process. You actually have to carry fewer of these parts right alongside the assembly line itself. That it improves our manufacturing costs. Complexity is really, really crucial. We're gonna do that, and then we are looking at all the other structural costs, for example. We're going to have lower advertising costs. The position that Jim announced earlier that Stuart Rowley is taking. He is gonna focus on benchmarking every aspect of our business. One of the big costs is our investment as we invest in products. Are they efficient? Are they world-class? If they're not, we need to take a bunch of investment out of there without the product and improve the business. It's a combination of all those things that's gonna get Blue to be much leaner, much more cost-efficient. Very helpful. Thank you. Thank you. Our next question is going to come from the line of Jairam Nathan with Daiwa. Hi. Thanks. Thanks for taking my question. Kumar, I just have one question for you on retaining talent morale on the Ford Blue side. How do you do that? I had just one more after that. I'm sorry, Jairam, if. Morale on the Ford Blue side and then retail talent. Morale on the Ford Blue side. Ford Blue is an incredibly exciting business. It is the business that's gonna be the profit engine for the company for years to come. Secondly, the products that Ford Blue has are incredibly passionate, emotional kind of products. You should have the opportunity to speak with our teams who create these amazing products like the Bronco, the F-Series, the Raptor, the Mustang. All of these teams, literally, and not to be cliché, they bleed Ford Blue. The morale is high. The team's looking forward to combining all that, combining the great products and the experiences with a culture that's gonna be maniacal about being lean and about reducing costs. The other thing I'd add to that, I really believe, having been here for over 30 years. That the ability to focus for the teams is gonna be a huge morale booster. They'll know exactly what their remit is, what they have to deliver, what their targets are. They'll be able to focus in a level of depth that they haven't been able to do. Many of our employees want that. They're spread too thin. They're trying to do many things. They can't be experts in what they're interested in being experts in. Now we have this focus through the five business units. They will know exactly what they need to do. They will know exactly what they have to deliver this year, and it'll give them that clarity that they've been looking for. I think that's gonna increase morale, as we go through time this year and get this set up. Okay. Thanks. Just secondly, on a follow-up on the regional strategy, I just wanted to understand, specifically with China, what kind of arrangement would you need to have with the JV there to kind of have this similar organization structure? Well, you know, China's already there. They've structured this way already. In fact, we learned a lot from China as we were working on this. You know, Ford Electric Mach Technologies, that's our EV business in China, and Anning's had that up and running. We have now an agency model in our city stores that we're launching, which are pure EV stores, and that is Ford, the Ford team that people are interacting with, through the agency model with the dealers. China's already there. You're gonna see China, stand and run the way it is today, and their setup that is completely congruous with what we're doing today. With the rest of the company, with Ford Electric Mach Technologies. They have their ICE business, they have their distribution system set up, and they're off and running. We're learning as much as we can from China on how we do this. Okay, great. Thank you. Thank you. Our next question is gonna come from the line of Dan Levy with Credit Suisse. Hi. Good morning. Thank you. I wanted to go back to the question on just manufacturing, which I think was addressed partially during the last call. Maybe you could just talk about how the manufacturing split's gonna work between Blue and Model e. Maybe you could just provide a comment on how your labor partners have approached this plan, especially on Blue. Which you know, you've signaled over time, you know, could possibly see deterioration in volume. I mean, I think the way most of us are interpreting Blue is over time it's an ICE business, and over time ICE is gonna be minimized. Maybe you could just talk about the manufacturing side, and how the labor unions, you know, have answered your plans. Let me start. This is Kumar. Let me start with the split that you guys are talking about. Right now, we have plants. Let's just take North America, for example. We have 12 assembly plants, and Cuautitlán is dedicated battery electric plant. This is the plant that makes Mustang Mach-Es. And then there are plants that are mixed. The Kansas City plant makes the E-Transit, and we have a separate plant in at Rouge that's going to make the F-150 Lightning. Overall, we wanna maintain one manufacturing system. We have one contract with UAW, but the Model e team needs to be constantly learning from those plants. The way we're setting it up is there will be a director of manufacturing that'll be dedicated to the present production of these vehicles. And will report jointly to Lisa Drake, who's the industrial lead for Model e. And to our North American manufacturing head, who's John Savona. That's how we're splitting up manufacturing for now. As we build, for example, the plant in Tennessee, that's a dedicated plant. That will be 100% Model e plant. As we grow these volumes and build more plants, those plants will report to Model e. The contract with the union, the collective bargaining is one contract, and that's how it's staying, and we have our next set of negotiations coming up in 2023. We're being extremely transparent with the union. We have a great relationship with them. Jim and I have walked them through this entire thing over the last several days. From a pure contract perspective, there is no change between now and the next contract negotiation, which, you know, will begin in fall of next year. Thank you. That will conclude today's Q&A session. I'd like to turn the call back over to the presenters for closing remarks. Okay, Holly. Thank you. This is Lynn Tyson. Any follow-up calls, please don't hesitate to reach out to the IR team directly. We'll be available for the rest of the day. Thank you. This concludes the Ford Motor Company Capital Markets call. Thank you for your participation. You may now disconnect.